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State estimate of potential marijuana tax revenue includes consumers under 21

Staff Report
February 04. 2014 7:28PM

A rough estimate of tax revenues from legalized marijuana assumed that everyone 18 years and older could buy and use the drug, an assumption that conflicts with the legislation under consideration by the New Hampshire House.

The legislation — House Bill 492 — would legalize the drug for anyone 21 or older. That means the tax revenue estimates — between $26.6 million and $39.9 million — are based on more people buying marijuana and paying the tax than would be legally allowed.

The Department of Revenue Administration provided the estimate to the House Ways and Means Committee last week.

"We made a long-winded caveat before presenting the fiscal impact during testimony yesterday that these are estimates made with very large assumptions," tax policy analyst Melinda Ellen Cyr wrote in an email. "The point was to give the committee a very rough estimate."

To arrive at its estimate, the DRA used two age-based percentages. One was the percentage of New Hampshire residents 18 and older, which came from the U.S. Census. The other was the percentage of people 18 and older who reported using marijuana, provided by the 2012 National Survey on Drug Use and Health.

Both were used to calculate the number of tax-paying marijuana users — 125,782 — in the state if the legislation becomes law.

Two states — Colorado and Washington — have legalized recreational use of marijuana, and their estimates of tax revenues range from conservative in the case of Colorado to overly optimistic in the case of Washington.

Colorado, which as four times the population of New Hampshire, estimates $67 million in tax revenues on marijuana sales, according to Bloomberg News. Colorado started selling marijuana for recreation use on Jan. 1.

Washington, at more than five times the population of New Hampshire, has projected $400 million in annual tax revenues once a fully functioning market develops, according to CNN Money. Legals sales begin there later this year.

In New Hampshire, the House Ways and Means Committee is working on details of the marijuana bill, which included estimated revenues and expenses for the state. On Tuesday, the Committee named five representatives to a subcommittee to work out issues that have arisen since an initial House vote two weeks ago in favor of legislation, according to a blog by Rep. Steve Vaillancourt, R-Manchester, the prime sponsor of the bill.

Any legalization faces an uphill battle in the Senate and a promised veto by Gov. Maggie Hassan.

An advocate for legalization faults the DRA estimate, although he said does not dispute the idea of counting revenue from smokers who would be aged 18 to 20.

Matt Simon, New England political director for the Marijuana Policy Project, said young adults already use marijuana, and no amount of regulation or prohibition will keep them from doing so.

"Kids in New Hampshire aren't drinking moonshine or bathtub gin — instead, an adult is buying legal alcohol for them and paying the tax. Same with tobacco — somebody is paying the tax for any tobacco products that are diverted to kids. This is reality, and economic projections should of course be based in reality," he wrote in an email.

But Simon thinks legalization will generate only $19.7 million to $29.6 million in tax revenues. He differs with the DRA projection for other reasons:

• He believes DRA's upper estimate of the price of marijuana, at $400 an ounce, is high. He thinks weed will sell for an average of $280 an ounce, generating less retail sales tax revenue.

• The DRA did not consider a clause in the legalization bill that will allow residents to grow up to six plants apiece, tax-free.

• The DRA did not consider use of medicinal marijuana, which will not be taxed when that program begins in 2015.

The House legislation sets at wholesale tax on weed at $30 an ounce and a retail sales tax of 15 percent. Simon's wide range in weed tax revenues depends on the amount of home-grown and medicinal marijuana that will be consumed.

His estimates of taxable marijuana range from 274,500 ounces to 411,700 ounces. The upper end of his estimate comes close to the DRA's projection of 444,000 ounces.

Here's how the DRA made its calculation:

• Number of marijuana users, 125,782. Formula: New Hampshire population (U.S. census) 1,323,459 x 79.2 percent (ratio of residents 18 or older; U.S. census) x 12 percent (estimated percentage of 18 and older marijuana users, 2012 National Survey on Drug Use and Health).

• Estimated ounces consumed, 444,009 ounces. Formula: Users (from above) x 3.53 ounces (average marijuana consumption, Colorado Futures Center).

• Wholesale tax revenue: $13.3 million. Formula: Ounces sold (from above) x $30 per ounce wholesale tax (from legislation).

• Sales tax revenue: $13.3 million to $26.6 million. Formula: Ounces sold (from above) x $200 per ounce (Retail Colorado price, low end; Bloomberg News) x 15 percent sales tax (from legislation). Or Ounces sold (from above) x $400 per ounce (Retail Colorado price, high end; Bloomberg News) x 15 percent sales tax.

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